It is a little over a year since tragedy struck the Gold Coast theme park, Dreamworld – sparking a massive chain of events for its owner Ardent Leisure – a board coup, a new major shareholder, the departure of two chief executives and now the sale of its Bowling & Entertainment division.
It is a business barely recognisable from 20 months ago.
From a company that earned $42.2 million in 2016 its profit plunged to a bottom line loss of more than $62 million in 2017 while core earnings fell from $62.4 million to $11.3 million. Most of the earnings collapse was related to Dreamworld catastrophe.
So why not sell Dreamworld rather than the less controversial n Bowling alleys?
To begin with the newly installed chairman and veteran corporate raider/fixer, Gary Weiss, said no one has approached Ardent with any kind of expression of interest in the theme park business.
Thus the $160 million cash that Ardent will receive from selling the Bowling and Entertainment division (bowling alleys in Australasia) will be ploughed back into investing into its theme park operations and its US based Main Event which are entertainment complexes anchored by bowling alleys.
Those investors hoping for some kind of capital management initiatives may be disappointed. There was no talk of a big lift to dividends or a share buyback.
Nonetheless the market greeted the deal with enthusiasm – pushing the share price up 7.8 per cent within hours.
All three of Ardent’s divisions needed capital and one needed to be sacrificed to provide money for the others.
When Quadrant Private Equity came along and offered a handsome price for the n based Bowling and Entertainment division, the decision became easy.
Ardent had earlier announced plans to boost this division – a move that required significant investment. But Weiss admitted on Wednesday that there were executional risks to achieving the earnings uplift they were looking for.
Weiss readily acknowledges that the Bowling & Entertainment division has generated sub-par returns for the past few years – 4.2 percent on invested capital.
And he said competition in this market is increasing and there had been aggressive bidding for new sites. Shopping malls in particular have been on the hunt for family entertainment tenants but Weiss has concerns about shopping mall attendance down the track – an issue about which he would have a deep understanding given his position, until recently, as a director of Solomon Lew’s retail company, Premier Investments.
Apart from receiving no offers on Dreamworld – which still hasn’t recovered the pre-disaster attendance levels – the board presumably decided that selling an asset while still tainted by accident on one of its rides resulted in the death of four people didn’t look like a good timing move.
Performance needs to be improved first.
Weiss said “In Theme Parks our goal is to reinvigorate customer attendance through the introduction of new attractions and further expanding our strategic partnerships, as well as continuing to explore opportunities to develop our surplus land.”
In theory theme parks are assets that should have longer term appeal given the booming inbound tourist market particularly from Asia.
But on Wednesday Weiss was a bit vague about the current attendance levels. He said he was at Dreamworld on Friday and attendance levels seemed very strong. But he did mention the caveat that the major attendance draw card – the Wiggles – were also there.
His second piece of evidence for attendance levels was a recent Nine Network piece which mentioned the Dreamworld car park was full.
One suspects the financial analysts were looking for a more quantitative response.
Meanwhile the prospect of land development is clearly something the Ardent board recognise as blue sky for this division and plans are already being drawn up.
The clear hope expressed by Weiss is that the ???materially strengthened financial position’ would give Ardent the opportunity to generate higher returns over time.
But who is taking charge of the re-invigoration of the remainder of Ardent’s businesses remains something of a mystery.
Its most recent chief executive, Simon Kelly, departed the post having lasted only six months.
But Weiss wants to fill the vacant posts at the division level before deciding what to do about the top job. Apparently head office at Ardent is working well without a permanent chief executive.
I guess that’s one way to save money.